Mumbai: US Federal Reserve Chairman, Ben S. Bernanke,
has urged China to allow its currency to appreciate
by widening its trading band, thereby ending what he
called "an effective subsidy'''' to exporters in
said distortions caused by an undervalued renminbi (the
yuan) could leave China with wasteful investments and
costly financial instability over the longer term. Bernanke
urged China''s policy makers to give primacy to markets
and grant independence to the People''s Bank of China
in deciding currency policy.
appreciation of the renminbi, combined with a wider
trading band and with the ultimate goal of a market-determined
exchange rate, would allow an effective and independent
monetary policy,'''' Bernanke said at the Sino-US strategic
meeting in Beijing. This would ``enhance China''s future
growth and stability,'''' he added.
monetary authorities have limited the yuan''s gains to
5.8 per cent since ending its strict peg to the dollar
in July 2005. China limits yuan fluctuations to 0.3
per cent a day. The Chinese currency currently trades
at around 7.8215 per dollar.
Bernanke, 53, was specific in his criticism of China''s
exchange-rate mechanism, US treasury secretary Henry
Paulson who is accompanying Bernanke limited his comments
on the yuan to calls for more ``flexibility.''''
told reporters in Beijing that China has agreed to make
its currency more flexible.
Exports account for 35 per cent of China''s gross domestic
product, which is increasing at rates above 10 per cent.
Domestic demand is lagging behind. Consumption last
year accounted for the lowest share of GDP since 1978,
according to the statistics bureau.
with the large trade and current account deficits of
the United States, the Chinese external surpluses are
contributing to the current pattern of global imbalances,''''
total trade surplus will rise to a record $168 billion
according to figures supplied by China''s customs bureau